Physical Gold VS ETFs

Exchange Traded Funds (or ETFs), have become increasingly popular in the last few years. Funds with names like GLD and SLV have begun to allow investors to move into commodities markets – markets into which historically, only the heartiest investors have dared tread.

But now by buying an ETF, an investor who buys into a precious metal exchange traded fund and has their money pooled with other investor’s funds to purchase shares of gold or silver instead of buying the actual physical metal.

Houston Gold Merchants offers only actual physical bullion for sale. ETFs are marketed as a substitute for physical precious metals, one that avoids the hassle of shipping and storage costs. But because the owner of an ETF allegedly owns only a portion of physical gold (or silver), only the paper certificate trades hands in the transaction. The actual physical gold does not.

Full disclosure: Houston Gold Merchants cannot and does not offer any ETFs for sale. But there are a variety of vendors who trade in these investment vehicles.

SPDR Gold Trust, the creators of one of these ETFs called GLD, markets their product as equal to actual gold assets. SPDR claims it possesses over 39.2 million ounces of gold with total assets valued at approximately $63.3 million. GLD ETF certificates are exchanged freely through exchanges.

In essence, the companies that market ETFs would have you believe in the old saying – “It’s as good as gold…”

But even though GLD is supposedly backed by physical metal, an investor can never actually redeem their certificates for an equivalent amount of gold.  In other words, ETF shareholders have no right to take possession of the metal under any circumstances – EVER. You own paper.

The problems come because there is no regulatory body for ETFs nor any requirement of transparency. SPDR operates under a veil of secrecy. Questions about the holdings, custody and management of the funds are myriad and unanswerable. How much gold is actually held by these firms? Why has it never been audited? Why isn’t it regulated? Additionally, without audits and accounting to ensure that the ETF holder’s gold is actually where the company says it is, nobody can say with any degree of certainty that it’s not just smoke and mirrors.

In the case of GLD, because the gold is held in HSBC’s vault in London, the actual physical gold could easily be leased to others or comingled with other member’s gold as this vault is the place where much of the world’s gold leasing occurs.

Lastly, GLD (the paper product) can be sold short. This has the effect of turning gold, which used to be used as a hedge against banker’s tendencies to gamble into just another poker chip in a giant game of financial chance.  ETFs are being traded, leveraged and gambled in a way that gold has not been. Now actual gold and silver supplies are being affected by the movement of large volumes of this “paper” metal. It’s turned the safe haven metals of gold and silver into just another stock to be traded wildly on Wall Street.

Is there no market that Wall Street cannot corrupt?

After having reviewed all these issues, ETFs like GLD as well as other precious metal  ETFs, are a less than ideal place for your investment dollars. We considered them as hazardous as any other speculative stock purchase. It’s our opinion that the more metal you can physically hold, the more secure that investment becomes. Because you’re controlling the physical specimen. You safeguard it, you manage it, you have custody of it. When you relinquish control of your money, you relinquish control of your financial future.

It’s the opinion of Houston Gold Merchants that owning and holding precious metals is still the best hedge against inflation and economic uncertainty.

Houston Gold Merchants makes investing in physical gold easy. We buy and sell the real thing, the actual metal, every day. If you actually want a safe haven investment, call Houston Gold Merchants. We’ll make it EASY to invest in gold.